Spot ETFs Give Rise to Crypto Basis Trading
A basis trade is a strategy that involves taking simultaneous, opposing positions in the spot and futures markets to capture the price difference between them.
Basis = Futures Price − Spot Price
The strategy aims to establish a delta-neutral position, where the combined exposure is insulated from the underlying asset’s directional price movements. Instead, the profit or loss is determined by the “locked-in” basis as the two prices converge at the future contract’s expiration.
Below is a common scenario where the futures price is higher than the spot price, known as contango or a positive basis.
Consider a hypothetical trading situation where a spot Bitcoin ETF is trading at $100,000. Simultaneously, the lead-month CME…
